Israel's venture capital industry continues to attract the attention of large global investing institutions, but the minimal share of Israeli institutions investing in the country's venture capital industry continues to worry VC fund executives. "In 2005, Israeli VC funds raised $1.2 billion of which 94% came from overseas investors and only 5% from local institutional investors, who are still reluctant to invest in local VC funds or in VC funds at all," said Erez Shachar, managing partner of Evergreen Venture Partners at the IVA Israel Hi-Tech Conference 2006 on Tuesday in Tel Aviv Local investors have had a more risk averse attitude after losing money in VC investments when the hi-tech bubble burst in 2000. Discussing institutional investment patterns, experts said that while circumstances were ripe for Israeli institutional investors to fall in line with their American and European counterparts by entering the venture capital market, Israel's capital funding has been mainly foreign. "Historically, institutions were used to investing in cast iron government investments that gave them acceptable and even respectable returns at no risk whatsoever, so they did not get into the more risky business of VC funds," said Ehud Michman, head of Alternative Investments Division at Phoenix Insurance Co. "Through the new financial reforms, this situation has changed." Michman added that a second key concern had been the regulation and valuation of venture capital fund investments. "The current barrier for local institutional investors is the so-called J-curve effect, which has the effect of a negative return at first," said Michman. First-time investors in funds are often introduced to the J-curve effect. This is the circumstance when early interim valuations of a venture capital portfolio decline relative to the capital the investor has contributed, which can create considerable angst. The J-curve effect is generally due to management fees charged on the fund's committed capital. Michman identified solutions for challenges which institutional investors faced in managing VC portfolios such as mitigation of the J-curve effect, due-diligence capabilities, access to best funds and negotiation abilities. In attempting to explain the lack of local institutional investors, Arik Perez, senior deputy commissioner of Insurance, Saving and Capital Markets, said the liberalization of investment patterns needed more time in order to learn and understand new financial instruments. "Within four or five years, we believe that local institutional bodies will get into private equity."